And while large deficits once fueled fears of inflation – as too many dollars chased too few goods – price increases have been too comfortable for years. Add to that the emergency needs of the pandemic, and even the Fed leader, who has long warned about the country’s debt burden, said it was a reasonable time to spend money.
“As a general rule, it’s important to be on a sustainable fiscal path,” Fed Chairman Jerome H. Powell, a Republican, told a news conference last month. “From my point of view and many others, it is time to focus on when the economy is strong and unemployment is low, and taxes, as you know, are pouring in.”
The political rethinking of the deficit – especially in times of economic weakness – is a strong change from earlier periods. In the 1990s, President Bill Clinton emphasized his success by reducing the deficit and creating a budget surplus as a political achievement for the Democrats. Concerns about excessive federal spending and national debt also helped fuel the rise of the Tea Party in the late 2000s, leading to a new kind of Republican who succeeded in ushering in strict spending caps that legislators of intoxicants continued. But after 2014, Republicans joined Democrats to give up the caps, and a two-chamber deal signed in 2019 ensured that it expires this year.
But while some economists and politicians are becoming more comfortable with high levels of public debt, others are warning that they could cause vulnerabilities again. If interest rates rise, it could cost the government more to keep up with payments each year – either left less for other forms of spending or Congress would have to accumulate an ever-growing debt burden to keep up.
Republicans often worried out loud about the shortage while adopting policies that would bring about its expansion. For example, it was expected that tax cuts introduced by Congress earlier in Mr. Trump’s government cleared would increase the deficit by $ 1.9 billion in the decade to 2028, based on an analysis by Congress’ budget office.
But the party has generally called for fiscal responsibility to block larger spending programs.
“Republicans are happy to increase the deficit to lower taxes, but not like to make up the deficit to spend more,” said Michael Strain, director of economic policy studies at the American Enterprise Institute.